Verizon buying Yahoo!’s core businesses for $4.83bn, a third place .com contender?

Verizon is acquiring most of Yahoo! $4.83bn in cash, to be combined with their AOL purchase. As a wet finger in the wind reckoning, this feels like it’ll put Verizon as a distant third place in eyeballs and ad revenue: that’s probably what the business case is targeting.

  • Yahoo! was at ~$4bn runrate (based on $1.09bn in revenue last reported quarter). Revenue has been declining steeply, down 11% q/q.
  • Valuation here is tricky, since Verizon is only buying “core assets.” One back of the envelop analysis put the “core assets” at $1.7bn, suggesting a valuation of ~2.8x.
  • Combined with AOL and other Verizon properties, the company says this will result in “global audience of more than 1 billion monthly active users — including 600 million monthly active mobile users.”
  • There’s fierce competition from Facebook and Google: “According to data from e-marketer in March, Yahoo’s worldwide net digital ad revenues will fall nearly 14% this year to $2.83 billion, from $3.28 billion in 2015. In contrast, Google will see a 9% increase while Facebook will be up by nearly a third year-on-year (31%).”
  • Despite this small pot of marketshare-by-revenue, at least in the US, the combined company will be in the top three of marketshare-by-eyeballs. If you were an i-banker looking at that in your spreadsheet, you’d think: we just need to increase eyeball-to-cash conversion productivity and – POW! – synergies!
  • As a reminder, AOL includes “The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com.” Yahoo! Mail has 225m monthly active users.
  • It keeps getting described as an “assets sale,” because Yahoo’s stake in Yahoo! Japan and Alibaba will stay with Yahol! As the NY Times puts it: “a 15 percent stake, worth about $32 billion based on its recent share price, in the Chinese internet company Alibaba and a 35.5 percent stake, worth about $8.7 billion, in Yahoo Japan.”
  • This will create some interesting post-deal structure for the numbers. The entire Yahoo! company is much bigger than that 1.1x valuation: “Yahoo! stock, which is up 18% this year, had a total market value of $37.4 billion at its close on Friday of $39.38.”
  • It’s pretty clear that the company wants to sell the remaining assets.
  • Rival bidders: “Suitors included Quicken Loans founder Dan Gilbert, communications giant AT&T and private equity firms Vector Capital Management and TPG.” AT&T seems to have been the main competitor. More from Kat Hall: “The telco was one of 40 suitors rumoured earlier this year to be interested, including Google parent Alphabet, Time and even Daily Mail parent DMG.”
  • It increases Verizon/AOL’s advertising marketing share, but Facebook and Google still dominate: “Verizon with AOL currently holds 1.8 per cent of the $69bn US digital ad market, according to The Wall Street Journal. Yahoo controls about 3.4 per cent, while Google and Facebook combined make up half of the total.”
  • Timing the sale of a declining asset is everything: “back in 2008, it turned down a $44 billion offer from Microsoft”
  • See some in-depth history and analysis from Timothy Lee over at Vox. The thesis seems to be: the company could adapt beyond it’s initial success in the 90s and never found a new identity beyond being a “media company.”

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